Dogecoin developers to counter deflationary pressure

For the last two months, developers and users of Dogecoin, the shiba-themed altcoin (alternative Bitcoin), have been trying to hash out whether it should be an inflationary or deflationary currency. On Saturday, Jackson Palmer, the creator of Dogecoin, wrote on Github that the developer team would keep the code as it is -- allowing for some limited inflation.

Advertisement

Most altcoins, as they've been designed so far, are deflationary. This means there's a hard cap on the number of coins that will ever be in existence. Bitcoin, for example, is designed to not have any more bitcoins come into existence after 2040. Other variants (Litecoin) have similar setups. However, one of the downsides of deflation is that it essentially encourages hoarding, as the perceived real value of the currency increases over time. Accordingly, academic researchers showed last year that 64 percent of all bitcoins (PDF) have never been spent.

As Palmer wrote: "Based on everyone's feedback, we've decided to leave the Dogecoin code base as it was originally released and not implement a change. The goal for the currency is to keep approximately 100 billion coins in circulation -- thus after 100 billion dogecoins are created, rewards will continue at 10k each block. This will help maintain mining and stabilise the number of coins in circulation (considering lost wallets and various other ways coins may be destroyed) at 100 billion."

Read next

Amir fought Isis in Syria, now he’s enlisting an army of hacker monks to save bitcoin from itself

ByGian Volpicelli

Palmer did not immediately respond to Ars' request for comment.

"Now it's going to be worthless"

Almost immediately, some Dogecoiners got upset, because each individual dogecoin will be worth less over time. "Thanks for killing the profitability of the currency. Now it's going to be worthless in a couple of years and never reach the value of Bitcoin or even anywhere close," wrote MadCold on Github. "I'm strictly in it for the money. I bought in to massive amounts of Dogecoin when the price was cheap, expecting it to rise.

Advertisement

So far it looks like the value of the currency is tanking. Nearly 10c per 1K over the past few hours. I still demand @ummjackson answer for what he's doing to ruin the Dogecoin currency."

Still, others cheered the decision, as user shinekm did: "Fantastic decision. Now it has a realistic chance of becoming a usable currency instead of some bizarre speculative asset for early adopting hoarders. A win for basic economics. I'm still holding mine, as I was planning to anyway. I'd also like to thank the panic dumpers for spreading wealth to the incoming newbie shibes at discount prices. Such generosity."

Inflation is "actually a good thing"

Advertisement

Economists argue that given this decision, Dogecoin just might have a better chance of being used and transacted in the long-term. (After all, there's still just a handful of businesses that accept dogecoins as payment.) "As long as it's at a steady and predictable rate, you would want that inflation rate to more or less match the growth of the global economy," James Angel, a finance professor at Georgetown University, told Ars. "In order for a currency to survive, it's got to be useful. One of the problems we learned with gold standard was that it's too inflexible -- it takes too long for gold miners to dig it up out of the ground. Having a nice, steady, predictable money supply is actually a good thing."

On the opposite end, other experts dismissed the entire altcoin concept at its core. "Many of the newer designed e-coins are trying to correct the flaw in the Bitcoin design that has encouraged hoarding by adding a cost element if the currency is not circulated and also adjusting coins to a targeted inflation rate such as Dogecoin," Mark Williams, a lecturer at Boston University, told Ars. "Although many of these newer e-coins are a marked improvement over Bitcoin, they all fail to acknowledge that human behavior, not mathematical equations, drives markets. Until human behavior can be modeled, these models and coins can't anticipate these actions. In general, virtual currencies are no substitute for central bankers that take into account quantitative and qualitative attributes when making monetary policy decisions that include money supply."